The beheading of an American hostage in Iraq by militants linked to al Qaeda is believed to have been a revenge attack for the abuse of prisoners by US soldiers.

A poor-quality video on an Islamic website showing the execution was condemned by the Foreign Office as "utterly repugnant and indefensible" and the British Red Cross was "shocked and appalled".

The chilling footage showed the beheading of a man, who gave his name as Nick Berg, by a group of five men wearing headscarfs and black ski masks. The men said the killing was to avenge the abuse of Iraqi detainees by US soldiers, widely predicted since the release of the pictures across the globe.

The video posted on the Ansar Islam Forum website - a known clearing house for statements by extremist Islamic groups - was entitled "Abu Musab al-Zarqawi slaughtering an American".

Al-Zarqawi, a known associate of al Qaeda leader Osama bin Laden, has been blamed by the US for orchestrating terrorist attacks in Iraq since the fall of Saddam Hussein.

The video shows the executioners reading a statement before pulling the man to his side and putting a large knife to his neck. A scream is heard as they cut off his head, shouting "Allahu Akbar!" - "God is great".

They then hold the head up in front of the camera.

The shocking video images, increasingly favoured as propaganda by terrorists, recalled the death of Wall Street reporter Daniel Pearl.

Two years ago Muslim militants released a gruesome video of Pearl, who was kidnapped in Pakistan, being murdered in captivity as his throat was slit from behind.

The body of Mr Berg, a 26-year-old businessman from Philadelphia, was discovered in Baghdad on Saturday.

New Iraq abuse claims

Iraqi prisoners were urinated on, regularly beaten and spat at by British troops whose behaviour was condoned by superiors, it was reported today.

In one incident, soldiers took turns in assaulting a prisoner trapped in an armoured personnel carrier, according to the Mirror newspaper.

One of the soldiers who has come forward also said that earlier published pictures, which allegedly showed British troops abusing Iraqi prisoners, were genuine. Two soldiers, disguised as E and F, both told the newspaper they regularly witnessed the abuse of Iraqi prisoners by British troops.

Soldier E, of the Territorial Army attached to the Queen's Lancashire Regiment, said he had been "sickened" by what he saw in the southern Iraq city of Basra where British forces are based.